Nordea and DNB to Merge Their Banking Operations in Baltics

Nordea Bank AB and DNB ASA have agreed to combine their operations in Estonia, Latvia and Lithuania to build up scale in a corner of their business that forms part of the euro zone.

Stockholm-based Nordea and DNB, based on Oslo, will have equal voting rights over the combined bank, the two said in a joint statement on Thursday. The deal still needs regulatory approval, but is expected to be completed around the second quarter next year, they said. The banks will operate independently until all necessary approvals have been received.

The move is intended to make the combined unit the “main bank for customers in the Baltics” by gaining scale and a broader product offering, Inga Skisaker, head of Banking Baltic Countries at Nordea, said in the statement.

Nordea’s Baltic unit has 1,300 employees and 8 billion euros ($9 billion) in assets. At DNB, there are 1,800 employees and 5 billion euros in assets. The combination will create the second-largest bank in the Baltics, which will rank first in corporate loans and second in household loans. Its total lending market share will be 26 percent. The new entity will be a systemically critical bank in the region, meaning it will be supervised by the European Central Bank.

In Lithuania, the combined unit will become the largest bank measured by lending volume, with a market share of 30 percent, overtaking Sweden’s SEB AB as the No. 1. In Latvia, the combined unit will become the second-largest lender in terms of assets, just behind Sweden’s Swedbank AB.

Mats Wermelin, head of DNB’s Baltic Division, told reporters at a press conference in Riga on Thursday that DNB needs to add scale in the Baltic region to prepare for the future banking environment. Scale is “key in banking today, with larger banks having more efficient use of resources,” he said.

DNB is no stranger to Baltic joint ventures, having had one with Germany’s Norddeutsche Landesbank Girozentrale. In 2010, it exercised an option to take over the German bank’s share in DnB NORD, which operated in Estonia, Latvia, Lithuania and Poland.

Nordea’s and DNB’s combined Baltic unit would be registered in Estonia, and operate the Latvian and Lithuanian business as branches. The Estonian central bank said the combination would increase the assets of the country’s banking sector by 40 percent and expose Estonian financial stability to Latvian and Lithuanian banking market risks.

“Our banking risks will be more dependent on Latvia and Lithuania where a large part of the new bank’s business would be,” Bank of Estonia said. If the deal gets regulatory approval, “we would certainly pay more attention to the Latvian and Lithuanian market when analyzing financial stability risks,” it said.

Nordea declined 0.3 percent to 78.7 kronor as of 12:57 p.m. in Stockholm trading while DNB fell 0.3 percent to 97.85 kroner in Oslo.

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